August 9, 2021 | Delta Variant Surge & China's Zero-Covid Policy

How long will China continue to deploy zero-covid policy? Should we treat the delta variant outbreak as a new pandemic?

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We’re turning attention to the impact of the delta variant outbreak, particularly in China. Goldman Sachs, JPMorgan, and Morgan Stanley have cut their China growth forecasts following Monday’s news that Chinese exports unexpectedly fell.

It seems prudent to view the spread of the delta variant as a new pandemic.

In the United States, the volume of new cases appears to be surging once again. August 6, 2021, marked a six-month daily high for new cases in all US regions

Even without the spread of the delta variant, China was expected to continue its zero-covid policy through at least the National Congress of the Chinese Communist Party (NPC) at the end of 2022.

Others believe zero-covid policy is less politically motivated and more predicated on neighboring countries/cities can reach a minimum vaccination rate (presumably with Chinese vaccines):

Political reciprocity could also be an issue, as Chinese officials may seek mutual acceptance of Chinese and western vaccines in places like the United States. Given the fraught geopolitical environment, US-China reciprocal vaccine recognition seems highly unlikely, even if differences in vaccine efficacy between Chinese and western vaccines are possibly marginal.

Some Chinese officials have openly questioned the long-term effectiveness of China’s current zero-covid approach:

“Dr Joseph Tsang Kay-yan, chairman of the Hong Kong Medical Association’s communicable diseases committee, said total elimination of the virus was highly difficult to achieve and if mainland China stuck to its zero-tolerance approach to Covid-19, the reopening of the border with Hong Kong would be further delayed.

Questions:

  • Is it reasonable to view the delta variant surge as a new pandemic?

  • What will the long-term impact of China’s zero-covid policy be on US-China relations?

  • To what degree is China’s zero-covid policy an attempt to trial run enhanced strategic autonomy and reduce dependence on the global economy?

What are the political implications if the delta variant continues to surge in the United States? Assuming China currently sees its institutional and governance advantages as key advantages over the US, how will China’s perception of the US change if the Biden administration also fails to control the delta variant outbreak?


Recommended Reading and Content

I’m working my way through Rush Doshi’s book The Long Game: China’s Grand Strategy to Displace American Order. This book is significant because it offers a glimpse into the Biden administration’s China policy. Rush Doshi is the Director for China on the Biden Administration’s National Security Council.

I plan on writing my own in-depth review of The Long Game in the coming days but in the meantime, I suggest checking out Jon Sine’s review.

For those of you who have already finished The Long Game and are looking for additional reading to complement Doshi’s ideas, I recommend Yan Xuetong’s Leadership and the Rise of Great Powers.

Professor Yan is one of the world’s pre-eminent political scientists, and his work is essential for formulating a complete picture of PRC grand strategy from China’s perspective.

I also recommend revisiting the late Lee Kuan Yew’s analysis of US-China relations. I recommend Lee Kuan Yew: The Grand Master's Insights on China, the United States, and the World compiled by Harvard’s Graham Allison.

Rush Doshi cites Lee Kuan Yew in the introduction of The Long Game to underscore the scope of China’s regional and global ambitions:

Are Chinese leaders serious about displacing the United States as the number 1 power in Asia? In the world?

Of course. Why not? They have transformed a poor society by an economic miracle to become now the second-largest economy in the world—on track, as Goldman Sachs has predicted, to become the world’s largest economy in the next 20 years… Today, China is the world’s fastest developing nation, growing at rates unimaginable 50 years ago, a dramatic transformation no one predicted…The Chinese people have raised their expectations and aspirations. Every Chinese wants a strong and rich China, a nation as prosperous, advanced, and technologically competent as America, Europe, and Japan. This reawakened sense of destiny is an overpowering force.

(Allison, Graham; Blackwill, Robert D.; Wyne, Ali. Lee Kuan Yew (Belfer Center Studies in International Security) (pp. 2-3). The MIT Press. Kindle Edition.)

Recommendations

Books

  1. The Long Game: China’s Grand Strategy to Displace American Order by Rush Doshi

  2. Leadership and the Rise of Great Powers by Yan Xuetong

  3. Lee Kuan Yew: The Grand Master's Insights on China, the United States, and the World by Graham Allison

Podcasts

  1. Acquired crossover — 2021 China tech trends (Rui Ma, Ying Lu; Tech Buzz China)

  2. Avoiding ideological conflict with Beijing: Thomas Pepinsky and Jessica Chen Weiss (Kaiser Kuo; Sinica Podcast)

Newsletters

  1. Sinocism (Bill Bishop)

  2. Pekingnology (Zichen Wang; Xinhua News)

  3. ChinaTalk (Jordan Schneider; Rhodium Group)

  4. Chinese Characteristics (Lillian li)


Current Events

Global Pandemic

China sticks with zero Covid-19 approach, leaving borders closed for now (South China Morning Post)

Beijing is set to stick to its zero-tolerance Covid-19 strategy, in a sign that mainland China’s borders will not be opening to Hong Kong or the outside world any time soon.

While some experts – including leading epidemiologist Zhang Wenhong, known as “China’s Dr Fauci” – are suggesting the country will need to live with the novel coronavirus, Beijing has doubled down on its elimination approach in the face of an outbreak of the more transmissible Delta variant.


Economy

Oil prices drop over 4% as China steps up efforts to contain delta variant outbreak

Oil futures traded sharply lower Monday morning, extending last week’s tumble as China took additional steps to limit the spread of the delta variant of the coronavirus that causes COVID-19, underlining fears about global crude demand.

“Market participants are watching the rising coronavirus figures in Asia with considerable alarm, as this could prompt the Chinese government to take drastic measures in line with its strict zero covid strategy, despite numbers there still being at a low level,” said Carsten Fritsch, commodity analyst at Commerzbank, in a note.


Regulatory

Overview of the 14th Five Year Plan (Abridged Version) (Lillian Li; Chinese Characteristics)

From the Mechanism of the Five Year Plan, we know that it's the Chinese government's wishful blueprint. It's a guidance document that's put together through rounds of discussions and buy-ins from provincial, municipal and state levels. Still, if any startup or large corporations release the OKRs, there's no guarantee they will all happen. The history of Chinese Five Year Plans (FYP) is littered with their failures as much as their successes. Goals that weren't accomplished in the prior period gets carried over and re-empathised. The actual groundwork is done by provincial and local governments who will translate these ambitious goals into local policies. To keep track of each theme’s progress, reading local governments’ policies is the safest bet.

Agility Over Stability: China’s Great Reversal in Regulating the Platform Economy (Angela Zhang, The University of Hong Kong)

This paper develops a new theoretical framework to analyze Chinese regulatory governance by considering the strategic interaction between four key players involved in the regulatory process: the top leadership, the regulators, the firms and the public. By focusing on China’s great reversal in regulating the platform economy, I argue that China’s volatile style of policymaking is deeply ingrained in its authoritarian governance, where power is centralized in the top leadership who also suffers from a chronic information deficit. This often leads to a policy control mechanism that fluctuates between very lax and very harsh enforcement. More specifically, I show how government support, firm lobbying and bureaucratic inertia together contributed to a lag in regulating online platforms. When a crisis loomed, the top leadership quickly mobilized all administrative resources and propaganda to initiate a law enforcement campaign against tech giants. However, without strong judicial oversight, aggressive agency interventions create the risk of over-enforcement and administrative abuse.

Twitter avatar for @AngelaZhangHKAngela Zhang @AngelaZhangHK
Here is my 25,000-word essay documenting China's dramatic policy swing in regulating the platform economy
papers.ssrn.com/sol3/papers.cf… I also discuss its implications on social welfare, technology and innovation and global investment. I'd be most grateful for your feedback. Image

What Xi Wants (Rahul Malhotra; Machan Capital)

There exists a highly technocratic section of the bureaucracy which is genuinely trying to build a modern legal system for the business economy. They scour the world for the best company laws and then patch them together. Thus China’s official accounting standards are among the toughest in the world and so are their listing requirements on exchanges. It is a different matter that the standards are often not followed and enforcement is spotty.

But just as China’s shiny high-tech corporations co-exist with state-owned enterprises (SOEs), technocratic agencies also must co-exist with draconian, communist institutions. The draconian part has become more well-defined now i.e. Xi Jinping and his close advisors (the “high command”). Other CCP leaders simply try to please him and try not to get on his wrong side.

Xi and co don’t see themselves as oppressive. Instead, they feel they bear a paternal responsibility to China’s progress which they cannot discharge without unconditional obedience. Some of the worst excesses arise from this paternalism. E.g. the Uighur people are seen as having “fallen behind” and so they must involuntarily reside in “special schools” until they have “caught up”.


US-China Relations

U.S. Steps Up Pressure on Businesses Over Forced Labor in China (Wall Street Journal)

U.S. lawmakers and Biden administration officials are stepping up pressure on American businesses to stop imports from the Western Chinese region of Xinjiang as Beijing’s alleged use of forced labor emerges as a top item on their bilateral trade agenda.

Western officials say the Chinese government uses forced labor of Uyghur and other Muslim minorities in Xinjiang, the world’s leading producer of cotton and raw materials used in solar panels. Beijing strongly denies the claim.

Imports of cotton and tomato products have already been effectively banned since January, and penalties on purchases of some solar materials were implemented in June.

Tougher restrictions are afoot. Congress is expected to approve legislation later this year that would prohibit imports of all products from Xinjiang unless the importer can prove their items are free of forced labor—a high bar.

The Long Game by Rush Doshi (Book Review by Jon Sine)

The Long Game is a rigorous and authoritative treatise on what the PRC wants and how it intends to get it. It is in key ways precisely what The Hundred-Year Marathon was not. China doyens have lined up to review the book favorably, including Susan Shirk, who called it an ‘instant classic’ that persuaded her to re-examine her own view that ‘China’s aims are open and malleable.’ It will be the talk of the town this summer in DC’s foreign policy circles. More consequentially, given Doshi’s position as China director on the Biden Administration’s NSC, it may offer substantive insights into how the US has been and will be handling its affairs with the PRC. Whether you agree or disagree with Doshi’s premise, the book is well-worth reading. And even if you don’t read it, you can be sure the PRC’s America watchers will.


Geopolitics

After Merkel, who? China and EU ties on a knife-edge as German chancellor says long goodbye (South China Morning Post)

Her farewell tour featured a trip to Washington, a series of high-level summits with Western allies, and multiple meetings with top level American officials in Europe – each of which had China placed high on the agenda.

Also on the schedule was a series of calls with Chinese leader Xi Jinping, during which he was careful to remind her of Europe’s “strategic autonomy” and independence from the US’ China policy, while she continued to seek out areas for collaboration.

It was typical of Merkel, who has for 16 years been the primary sponsor of a EU-China relationship that was weighted more heavily towards commerce than human rights.

But she leaves things delicately poised. A fierce backlash against China is rippling through the continent, as politicians, rights groups and media pressure authorities to take a firmer stand against human rights abuses and economic foul play.

There Is No Indo-Pacific Without Egypt and the Suez Canal (Mohammed Soliman; McClarty Associates, Middle East Institute)

The world is slowly emerging from the Suez Canal saga, where the Ever Given vessel was stuck in the narrow southern lane of the Canal for six days, disrupting global trade in a time of critical economic recovery. The Suez Canal, similar to the Straits of Malacca, is a choke point that handles 12 percent of global trade, 10 percent of world oil, and 8 percent of the global liquified natural gas (LNG) flows. The stranded Ever Given vessel held up trade valued at $9.6 billion along the canal each day. The incident sent shock waves across the map, sparking enormous discussions about supply chain resiliency and giving strategists a preview of what could happen if conflict in Asia escalates and Malacca is shut down. The West should take notice. Undermining the city of Suez as a cornerstone in global trade and geopolitics would eventually undermine the West in the era of great power competition with China and Russia. 


Photo by Dustin Humes on Unsplash